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NEW YORK - AS banks reel from massive US subprime losses, some experts argue that creating transparency in the market would be more effective at restoring public confidence than changing accounting rules.
'The regulator's tools for the most part are disclosure,' Roel Campos, former US Securities and Exchange Commissioner (SEC), said at the International Federation of Accountants' World Accountancy Forum in New York on Tuesday.
'I don't know that it is appropriate to expect regulation, regulators, and standard setters to essentially prevent the next restructuring or subprime mortgages,' he said in response to a question from Financial Accounting Standards Board Chairman Robert Herz.
'Maybe there is a different way of thinking about the risks in the system and how to govern the financial system,' Mr Herz told the forum. 'I don't know where the balance is, but we're somehow not getting it right.' Loose lending standards, rising interest rates in 2005 and 2006, and falling house prices led to an increase in the number of less-credit-worthy US borrowers and contributed to a US housing market slump.
Thousands of Americans with weak credit who obtained so-called subprime mortgages have defaulted on their loans and lost their homes.
Herz said he felt the subprime issue had damaged the reputation of US capital markets.
'I have to tell you, when I go abroad nowadays, we're losing credibility,' Mr Herz said. 'After these two last episodes (Enron and subprime) it doesn't play on Main Street anymore and it doesn't play in foreign capitals.' Mr Campos said he thought a tough enforcement response to specific wrongdoing was the way to curb such crises in the future.
'What you're left with in a free economy is the rough tool that Congress created - the SEC as an enforcement agency,' Mr Campos said. 'These bumps are part of what we have to expect.'
The Financial Accounting Standards Board is requiring companies to disclose more about the market values of their investments, under the FAS 157 and FAS 159 rules that went into effect for fiscal years beginning after Nov 15.
In the end, that sort of transparency is what investors will demand anyway, Jim Quigley, chief executive of Deloitte Touche Tohmatsu , said at the conference.
'The market forces will be the way that the correction will occur,' Mr Quigley said. 'It's clear that there's not the transparency that everybody wants and needs there, but the marketplace is going to adjust to that. People won't buy until they have the information that they need.' -- REUTERS
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